Every market sees a major boom, then a bust. In the last decade however, this boom and bust cycle has gotten increasingly faster as institutions feel they can rape the average investor multiple times a year, rather than once or twice a decade.
A large part of the blame falls on the Federal Reserve as their meddling in the economy creates bubble after bubble. The blame also falls on the institutions who take advantage of this, while still more blame falls on the media for pumping the markets when they are at highs and trashing them when they are at lows. While all these forces work beautifully to transfer wealth from the investing public to the institutions, the investor must take some of the blame. It seems that in the markets today, the average investor is an idiot, continuing to try and buy highs and sell lows. Generally, the saying goes, “Fool me once, shame on you. Fool me twice, shame on me.” The average investor seems to get fooled hundreds of times yet still will not blame themselves and look for improvement.
These are the markets we live in. Those in the know, that learn from their investing mistakes make money while the general masses will lose.
A great example of this was the Fiscal Cliff deal just reach last week. The markets soared for a few days, putting in a solid up week. This up week and media coverage was just enough to coax a majority of average investors back into the market. No sooner was the deal done and the little investor in, we have seen weakness. Even yesterday, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) pushed up early in the day, yet has now given back a majority of its gains. This does not look like a market with legs following a great deal on the Fiscal Cliff.
Bottom line is this: The Federal Reserve enables it, the media hypes it and the institutions take advantage of it. Lastly, the average investor repeats their errors, sadly.